When counselling becomes a danger - risk of punishment for coronavirus assistance?

What tax advisors need to know now as auditing third parties

In our short article, we already pointed out the worrying developments to the detriment of auditing third parties. We are now receiving an increasing number of enquiries from tax advisors who are confronted with allegations of subsidy fraud in connection with coronavirus aid, particularly the “November and December aid”.

The "affectedness" as a central prerequisite

In order to be eligible to apply for the November and December aid, the applicant had to be either directly or indirectly affected. A direct impact only existed if the activity carried out was prohibited by a state closure ordinance based exclusively on the resolutions of the federal and state governments of 28 October and the subsequent resolutions of 25 November and 2 December 2020. Closures based on later resolutions, on the other hand, did not lead to eligibility for funding. “Indirectly affected” or “indirectly affected via third parties” was assumed if another company within a supply chain was “directly affected”.

What the "scrutinising third parties" are accused of

All of the cases known to us have one thing in common: the accusation is that incorrect information was provided regarding eligibility to apply, usually regarding “direct concern”.

In fact, in many cases there is no objective authorisation to apply. However, this is often not due to culpable behaviour on the part of the examining third party, but rather to the complex and constantly changing regulatory situation at the time the application is submitted. One example illustrates the problem: Hairdressing businesses had to close in December 2020 due to an official closure order. However, this was not based on the above-mentioned resolutions, but on a later resolution from 15 December 2020. In view of the ever-changing regulations, uncertainty was unavoidable.

It is particularly explosive that the offence of subsidy fraud (Section 264 StGB) covers not only intentional but also reckless behaviour. Reckless behaviour is already present if the auditing third party grossly breaches their professional duty of care. The fact that, according to the FAQs, auditing third parties were obliged to obtain and retain suitable proof of eligibility from the applicants can be detrimental. In many cases, this obligation was not fulfilled – often due to ignorance. The decisive factor here is not whether you were actually aware of this obligation, but whether you were sufficiently informed about your obligations as a verifying third party before submitting the application.

Consequences under professional law

In addition to possible criminal sanctions, the third parties carrying out the checks may also face professional sanctions from the relevant chambers – in extreme cases even a ban from the profession.